Legalized mobile sports betting is now live in New York.
FanDuel, DraftKings, Caesars Sportsbook and Rush Street Interactive, the first companies permitted by the New York State Gaming Commission to offer mobile betting on sports games, can launch their sportsbooks in the state at 9 a.m. ET today.
New York is the fourth most populous state in the U.S. and is now the largest state to legalize sports betting. That won’t lead to an immediate injection of cash in the coffers of gambling companies, however. New York has an onerous 51% tax on gambling revenue — far larger than New Jersey’s 13% rate. Research firm Eilers & Krejcik Gaming estimates New York won’t replace New Jersey as the national leader in gross gaming revenue — the amount of money players wager minus the amount they win — until 2024.
Still, that doesn’t alter the long-term significance of today’s metaphorical ribbon-cutting, said Patrick Keane, chief executive of The Action Network, a media platform aimed at sports bettors.
“It’s arguably the biggest day in the history of sports betting,” Keane said. “And it’s magically positioned with the first and final 17-game season in NFL history.”
The National Football League’s final slate of regular-season games is tomorrow. The launch will give New York sports fans an instant opportunity to download apps and place bets on the NFL, the most popular American sport on which to bet. It also presents a valuable marketing opportunity for the first four companies to accumulate New York customers with promotional offers on their first bets.
Five other gambling companies — Bally Bet, BetMGM, WynnBet, PointsBet and Empire Resorts — have 10-year online sports betting licenses in New York but haven’t yet passed statutory and regulatory requirements to go live.
Sports betting grows
As of December, more than two dozen states have already legalized sports wagering, though several allow only in-person gambling. FanDuel and DraftKings have established themselves as the early market leaders in mobile sports betting, but national revenue numbers remain relatively low.
U.S. gambling companies generated about $3.25 billion in total revenue from sports betting in 2021, according to Eilers & Krejcik. About 20% of that came from New Jersey — the most of any state. New Jersey legalized mobile sports betting in 2018.
Investors are counting on a wagering surge as states including California and Texas prepare to vote on mobile legalization. Annual U.S. gambling revenue may grow to nearly $17 billion by 2026, according to Eilers & Krejcik.
“Every state is considering legalizing sportsbooks like DraftKings,” Matt Kalish, North America president and co-founder of DraftKings, said Friday on CNBC’s “Squawk Box.” “It’s a tremendously popular issue. In some recent referendums, like in Maryland or Louisiana, over 70% of votes supported legalized sports betting. It’s a good way to raise tax revenue, create jobs in the state, and fund projects that are important.”
Souring investor sentiment
But high future taxes, such as New York’s 51% rate, and ballooning marketing budgets have dampened some investor appeal for the industry. DraftKings and PointsBet shares have fallen more than 60% in the past 52 weeks.
With so many companies offering similar mobile sports betting products, companies have had to spend hundreds of millions of dollars to attract customers. One media executive told CNBC he predicts a major sports gambling company will either go bankrupt or sell “for peanuts” this year given the amount of competition and high costs to acquire customers.
“This business model is flawed,” Jim Chanos, the founder of hedge fund Kynikos Associates, said of DraftKings on CNBC last month. “The marketing spend in the U.S. is crazy.”
Chanos said he has had a short position on DraftKings for most of 2021. DraftKings CEO Jason Robins responded to Chanos in his own CNBC interview, saying it takes two to three years to reach profitability in a state, given the costs of marketing. He noted this has already happened in New Jersey.
Meanwhile, U.K. gambling company Flutter is considering spinning out FanDuel and taking it public in the U.S., but an ongoing legal dispute over ownership with Fox Sports has delayed progress.
WATCH: DraftKings CEO Jason Robins reacts to Jim Chanos’ short position
Disclosure: CNBC parent Comcast and NBC Sports are investors in FanDuel.